Equities

Forecasting the Distribution of Option Returns

We propose a method for constructing conditional option return distributions.

Market Risk and Efficiency

A Framework for Identifying Accounting Characteristics for Asset Pricing Models, with an Evaluation of Book-to-Price

We provide a framework for identifying accounting numbers that indicate risk and expected return.

Alternative Investing

Optimal Currency Hedging for International Equity Portfolios

We explore currency exposures in international equity portfolios by decomposing the optimal currency portfolio into a “hedge portfolio,” which minimizes equity volatility, and an “alpha seeking portfolio” based on the well-documented currency styles of value, momentum and carry.

Equities

Characteristics Are Covariances: A Unified Model of Risk and Return

We propose a new modeling approach for the cross section of returns that helps determine whether excess returns to factors are driven by compensation for risk, or an anomaly effect.

Equities

Empirical Asset Pricing via Machine Learning

We show how the field of machine learning can be used to empirically investigate asset premia including momentum, liquidity, and volatility.

Tax Aware

The Tax Benefits of Relaxing the Long-Only Constraint: Do They Come from Character or Deferral?

Are there tax benefits from relaxation of the long-only constraint? If so, what are the sources? To answer these questions, we decompose the total tax benefit (or liability) of a strategy into two components.

Alternative Investing

Risk Adjusted Performance of Middlemen in Housing Markets

Do housing market asset flippers outperform? We study the risk-adjusted returns of asset flippers operating in the housing market of Los Angeles County with respect to both investments in the U.S. stock market and in a passive mutual fund tracking a representative U.S. REIT index.

Derivatives

Being Right is Not Enough: Buying Options to Bet on Higher Realized Volatility

Should investors who buy options expect to profit when realized volatility increases? If so, under what conditions? To answer these questions, we analyzed the relationship between long volatility performance (buying options) and contemporaneous changes in volatility.

Trading

Trading Costs

Using live trade data from a large institutional money manager over a 19-year period, we find actual trading costs to be an order of magnitude smaller than previous studies suggest.

Asset Allocation

Long Horizon Predictability: A Cautionary Tale

We show there is much less evidence of long-horizon return predictability than existing research suggests, casting doubt over claims about forecasts based on stock market valuations and factor timing.